OTTAWA - The Conference Board says Canada's protectionist supply management system is costing consumers of dairy products billions of dollars, while also acting as a drag on the industry it coddles.

The report argues that Canadian consumers pay $2.6 billion â€” or about $276 per family â€” more a year than those in other countries as a result of a system that inflates prices for dairy products, including milk and cheese.

That has made dairy farmers among the most prosperous in the country, the Conference Board says, but it has also stalled progress and innovation in the industry.

In addition, the policy has effectively focused farmers on the slow-growing domestic market, limiting income and job creation.

It notes that farmers have been largely unable to take advantage of a global market in dairy that has grown by seven per cent annually over the past two years.

To become global players, it says, the dairy industry needs to follow the lead of New Zealand and Australia and be weaned off its dependence on a system of quotas and high tariff walls that artificially inflate prices in the domestic market.

In the long run, it says, dairy farmers themselves will benefit if supply management is phased out.

"Should Canadian dairy achieve significant success in the export markets (over the next decade), reaching export volumes half that of New Zealand, Canadaâ€™s annual production would grow from eight billion litres to 20 billion litres," the report estimates.

"Canadians would benefit to the tune of $1.3 billion from efficiency gains. Under this scenario, the number of dairy farms would actually increase by 2.1 per cent over 10 years, with the average herd size simultaneously increasing to 187."

The Ottawa-based think-tank has written critically on supply management in the past, but the new report comes at an opportune time as the system of agricultural supports is again on the table in the current TransPacific Partnership free trade talks, which include the U.S., New Zealand and Australia.

Those reports have mostly been dismissed by the industry, which has argued that all governments subsidize their agriculture sectors, and that there is little in the new findings likely to change minds.

Even the report's authors acknowledge that any government that sets out to tear down the system would face significant opposition from dairy farmers, who are primarily located in voter-rich Ontario and Quebec.

In the Canada-European Union trade deal, Canada agreed to increase import quotas for European cheese in exchange for higher beef and pork exports to the continent, but largely left supply management in place.

Still, the Harper government needed to assure dairy farmers that it would compensate them for any losses.

The Conference Board says the system can be challenged on both fairness and efficiency grounds â€” fairness because it transfers resources to a shrinking number of dairy farmers who are generally wealthier than their customers, and efficiency because by the supports essentially subsidies less efficient farmers.

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